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US Dollar Calm, Yen Strong as Volatility Threatens to Force a Break

US Dollar Calm, Yen Strong as Volatility Threatens to Force a Break

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US Dollar Talking Points:

- The US Dollar remains relatively quiet, all factors considered, as risk markets continue to flare with signs of weakness. US equity futures are poised for another gap-lower today, with the big question being whether or not the Dow and S&P 500 are exhibiting pullbacks, or the start of larger reversal themes.

- One currency that has not been quiet this week is the anti-risk Yen, further highlighting risk aversion themes across global markets. Last week’s FOMC decision appears to be a pivot, and the dimming hope around a US-China deal certainly hasn’t helped. But – is this backdrop of factors that can amount to a risk sell-off similar to what was seen in Q4 of last year?

- DailyFX Forecasts are published on a variety of currencies such as Gold, the US Dollar or the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

Do you want to see how retail traders are currently trading the US Dollar? Check out our IG Client Sentiment Indicator.

US Dollar: Relatively Quiet as Risk Aversion Signals Continue to Flare

The week thus far has been quieter in currencies than elsewhere, as both stocks and bonds remain in the midst of interesting moves while major currencies, such as the US Dollar or the EUR/USD pair, remain in indecisive near-term states.

In the US Dollar, the currency has been range-bound throughout this week, with sellers showing up to offer resistance around the 97.70 level that had previously functioned as the yearly high. Each of those resistance inflections this week has brought a shallower response, giving rise to an upward-sloping trend-line around this week’s lows, making for a short-term ascending triangle formation. This type of formation will often be approached in a bullish fashion, looking for the motivation that’s brought buyers in at higher-lows to, eventually, take-over for a bullish break through resistance.

US Dollar Hourly Price Chart

us dollar usd hourly price chart

Chart prepared by James Stanley

One of the currencies that has remained on the move this week against the US Dollar has been the anti-risk Japanese Yen. As risk aversion signals have continued to stack up across global markets, the Yen has seen support behind the bid, leading to a bearish move in USD/JPY. The pair has pushed down for a test of the same support zone that helped to cauterize the pair’s lows in March. This is taken from the 50% retracement of the November 2017 – March 2018 major move, and the 76.4% retracement from that same study was in play just two weeks ago when the pair was setting its 2019 high.

The big question at this point is whether this zone can hold support for long. The pair broke below a bullish trend-line in late-April, and since then, matters haven’t really been the same. What was previously a consistent up-trend has turned into an aggressive sell-off. The pair gapped-lower to start this week and, to date, that gap remains unfilled, highlighting the aggressiveness with which sellers have thus far treated the move.

USD/JPY Daily Price Chart

usdjpy daily price chart

Chart prepared by James Stanley

EUR/USD Priming for Big Break, in One Direction or the Other

EUR/USD remains fairly quiet, all factors considered, and the pair has spent the bulk of this week trading around and inside of a zone of prior support. This zone runs from 1.1187-1.1212, with each of those levels being derived from longer-term Fibonacci studies. This is the same zone that helped to hold support for almost six months while the pair was ranging; and that began to give way in late-April.

EUR/USD Four-Hour Price Chart

eurusd eur/usd four hour price chart

Chart prepared by James Stanley

Sellers were unable to make much of a dent, however, as prices pushed down to a low around 1.1120 before starting to scale-higher. Last Friday saw the build of a higher-low, giving rise to a short-term symmetrical wedge that remains on the chart. If this impasse can break, the door may finally open to the ‘big’ move in the Euro that so many have been waiting for since last year. But, of key consideration is the fact that this big move might not necessarily be-lower, as the US Dollar continues to struggle near resistance and bears have had ample opportunity to take control of the situation over the past few weeks and, thus far, have failed to do so.

EUR/USD Daily Price Chart

eurusd daily price chart

Chart prepared by James Stanley

Gold Prices Hold Higher-Low Support

Also in the column of risk aversion has been a series of bullish hints in Gold prices. I had looked into the matter of Gold prices coming into this week, plotting around last week’s failed breakdown at 2019 lows. Gold prices, similar to EUR/USD above, are working in the confines of a symmetrical wedge pattern, which in and of itself doesn’t carry a directional bias.

Gold Prices Daily Chart

Gold price daily chart

Chart prepared by James Stanley

Gold prices on a shorter-term basis, however, have been putting in bullish hints throughout this week. After gapping-higher to open trading, Gold prices quickly filled that gap on Monday with buyers coming in to offer support shortly after. And then as looked at yesterday, Gold prices pushed up for a trend-line test on the bullish side of the formation, with buyers pulling back ahead of a breakout. After that, a short-term bullish trend-line had developed off of this week’s lows, helping to further that pattern of higher-lows after that very recent higher-high.

This can keep the focus on the bullish side of Gold prices, particularly as themes of risk aversion remain centerstage. A topside break through yesterday’s highs exposes a big zone of resistance potential that runs from 1302-1310.

Gold Price Two-Hour Chart

gold price two hour chart

Chart prepared by James Stanley

Stocks Remain on Back Foot After Last Week’s FOMC

At this stage, hindsight isn’t yet clear enough to derive exactly what the driver is, but there appears to be a compendium of factors that’s pushing this current theme of risk aversion. Last week’s FOMC rate decision appears to be a key pivot, as does the weekend tweets from President Trump in which a deal with China was brought into question. Rising tensions with Iran probably doesn’t help matters, either. This makes for a considerably less attractive backdrop for the risk trade; and given how strong risk markets had rallied in Q1 and in the first month of Q2, a pullback had started to feel long overdue.

But the big question at this point is whether we’re dealing with a pullback or whether this is the start of something larger, feeding off of the factors mentioned above.

The context: Q4 was a troubling period for risk markets like the S&P 500 and the Dow Jones Industrial Average. After coming into the quarter riding high on the waves of bullish trends that persisted through Q2 and Q3, an off-hand remark from FOMC Chair Jerome Powell jolted markets into attention. In short order, sellers were taking control and by the time November had rolled around, global markets were looking at a much different backdrop.

At the core of this concern was an aggressive Fed, looking to further normalize interest rates by continuing to hike into 2019. As that pressure stacked up in the last quarter of 2018, FOMC members began to shift their verbiage into a less deterministic state, keeping more of an open mind as the door opened into 2019. This softening in the backdrop continued throughout Q1, with the Fed removing their prior expectation for two rate hikes this year, pushing that down to zero.

But last week’s FOMC rate decision saw the Fed as less-dovish than what many were looking for. Jerome Powell remained non-committal to future rate cuts, and since then, risk tolerance hasn’t quite been the same. The S&P 500, despite a strong rally last Friday, has continued in a pattern of lower-lows and lower-highs since that FOMC press conference.

S&P 500 Four-Hour Price Chart

spx500 four hour price chart

Chart prepared by James Stanley

This weekend saw a couple of tweets from President Donald Trump that dimmed the outlook on trade talks with China. When global markets opened on Monday, a big gap showed-up and US stocks started the week in the red. But – a strong rally developed on Monday after the US open that retraced most of those losses. Much like was seen last Friday, that strong rally stopped short of the prior high, giving another iteration of lower-high resistance.

Coming into yesterday’ the S&P 500 had started to exhibit some support off of the 38.2% retracement of the March-April bullish move, but even that couldn’t hold. The resistance zone pointed out in yesterday’s articles helped to catch the highs, at which point sellers came back into S&P futures overnight to punch down to another fresh monthly low.

S&P 500 Two-Hour Price Chart

s&p 500 two hour price chart

Chart prepared by James Stanley

Dow Jones Tests Big Support

Similarly, the Dow Jones Industrial Average remains on its back foot. The support zone looked at yesterday remains in play. It helped to set yesterday’s lows, at which point prices re-tested above the 26,110 level; but sellers came back into Dow futures overnight to elicit a re-test of that key support zone. For those looking at fade plays of this recent theme of risk aversion, the Dow remains of interest given that there’s a hold of key support while the S&P 500 has slipped-below its own support zone.

Dow Jones Industrial Average Eight-Hour Price Chart

dow jones eight hour price chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.